The first thing I want to do today is to look back in time to my entry point to help explain why I do the things that I do. The goal is to try and control major losses, not to call tops or bottoms to get in and out of the market based on price movement. So if we stay on top of things by just looking at closing data at the end of a trading day and make decisions based on rules, and not news, we can make some really logical decisions without all the emotions. That doesn't mean we totally ignore news, but you have to be abe to disregard that information and trade on what you see not what you hear.
The chart above is old and it comes from post dated June 16th. What it shows is the logical decision on how we enter and why I do not base it on news. It is easy to see that price broke the RED downtrend line, which makes signal number one. The green horizontal line is the Count Back Line theory that I use as another tool for entry and when price closes above that point it's a buy and you can see we also broke that for signal number two. Finally when price closes above the 50 day moving average we have another buy signal and you can see that the last price bar on the chart clearly closed above the 50, so we had a third buy signal. Last thing to mention is the red horizontal line which is the Count Back Line exit point, because we always want to know where we should get out based on rules, not news.
So by the 29th of June you can see that even though we made a decision to enter the market that doesn't mean it goes our way. But we have a set of rules that allow us to make un-emotional decisions. The more money you control the more important this issue becomes. So this is a very good reason why young people when they start saving money for retirement really need to begin as soon as possible learning the ins and outs of the stock market and handling of their retirement money. So back to the above chart, you can see we had at least 6 days of stress where we broke down through the 50 day moving average but never closed below our Count Back Line. Second, during this stress time, we created another higher pivot low which help us to stay in the market The last trading day on this chart closed very near the high since entering, so some relief to ones decision to get back in was present. The point here is not to listen to news, but have rules and let price make the decisions for you.
Looking above we have a up to date chart of the S&P500 and you see the ride was not always plesant from the entry point June 18th to present. The horizontal green line represents the date I got back into the market, C-fund. When I got in the Count Back Line was below the Green line but look where it is now. The present Count Back Line is sitting at $1394 which is 50 points above entry. We always monitor and always make adjustment as price moves so we do not have big losses and we do not give back to much profit. So now what has to happen for me to bail is the same for getting in but reversed. I would have to see the Count Back Line is broken, 50 day moving average has to broken, and finally the dotted Green uptrend line is broken. They do not have to fall in any particular sequence, but in most cases they all have to broken for me to bailout. We have had a very nice grind uphill and all indicators are saying to stay in, but one has to think that with this much movement uphill that a pull back in near. I will continue to ride this wave until price tells me to get out. I once again will say, what do I care if all the economies are falling apart and the United States has tons of debt. If prices are going up, then I'm riding it up until it begins to fall. There is one thing that I can always count on, I see an uptrend and can always see a downtrend. I will never need a TV, news, or word from a buddy to tell me which direction price is moving. Set your rules and watch price.
Finally the Small Cap stock ended the downtrend and has firmly made a move back to the positive. We took out the last three pivot highs and for what has been about month, the Small Caps appear to agreeing with the other indexes. We are now firmly above the 50 day moving average and have a nice dotted green uptrend line that we can now follow. I would be invested in Small Caps if I were out, but I have been in for awhile now.
Last week I was suppose to take my last 10% of money stting in the G-fund and roll it over into the I-fund, but Monday was a down day and then it just got away from me. Thursday the 16th was the next day that finally was telling me to get in and I didn't take it. I do not remember why but I must have pre-occupied at home with my shoudler recover amougst other things. Friday also confirmed the entry so, come this Monday, as long as the market is not in a steep downfall, I will make the move. You can see that I already have a Count Back Line exit point built on the chart and I'm not even in. These are the decision you have to make before hand to remove emotional decisions. That dotted green uptrend is way to steep and there is no way it can maintain that acsent, so we can expect some sideways churn or pullback soon.
Last thing I want to cover is Bonds. From July 5th to last week of July, bonds had a real nice run and looked to making a nice breakout. Then as suddenly as it took off a reversal began. So as of last Friday's, all of those gains were washed away and we are back where we started. I think it is funny how that $111 mark has been support and resistance since September 2011. I never entered the bonds because I just didn't see the reward for the risk. I just felt like if I was going to risk the moeny, I might as well be in the C or S and leave that little bit in the G. With all of this said, if you are thinking about entering bonds, the chart is currently saying to stay out. We are in a downtrend and below the 50 day moving average. Enough said.
So what you need to take away from this post, is that you can see and you do not need news for that. The only thing news does for you is to cluter your decision process. Sometimes I will admit that it is fun to listen to news agree with your decision on being in or argree on a particular stock, but almost everytime that happens, it is normally a minimum of a week behind my decision.
I will make a change Monday as long as we are even and or up. I will take my last 10% of G money and move it into the I-fund.
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